Colorado’s credit unions deserve to keep their non-profit status

By C. Alan Peppers

More than one in four Coloradans is a member of a credit union, the major alternative to commercial banks. They’ve had that choice for more than 80 years, since the Rio Grande Operating Credit Union, the oldest in our state, opened its doors in June 1931.

But that choice may be threatened as a result of congressional debate in Washington. The banking industry and its friends in Congress are considering stripping credit unions of their status as non-profit organizations as part of a broader tax reform package.

That would have disastrous, cost-inflating consequences — not just for Colorado’s more than 1.4 million credit-union members but also for the state’s still-struggling economy.

The banking industry pretends that banks and credit unions are essentially the same, since they provide similar services, like checking and savings accounts, car and small-business loans, and mortgages. But the two are very different.

Banks, like other corporations, are owned by shareholders and managed to produce a profit. Credit unions, on the other hand, are member-owned cooperatives. They have a long history of providing financial services primarily to middle- and working-class families.

Credit unions are run democratically, serving the needs of their members exclusively. They don’t set out to generate profits. Instead, they return their earnings to their members in the form of better rates on deposits, lower rates on loans, and reduced fees.

For example, Colorado’s credit unions recently offered 48-month used car loans at an average interest rate of 3.2 percent, compared with an average of 5.25 percent charged by banks. For a $15,000 loan, that’s a difference of almost $2,000 over the life of the loan.

Add it all up, and credit unions provide more than $90 million in direct economic benefits to their members. That’s equivalent to more than $120 per member household. Those savings stay in Colorado rather than going to bank stockholders.

Credit unions also focus on markets typically underserved by banks. For starters, they’re much smaller. Combined, America’s 7,600 credit unions book have little more than $1 trillion in assets. Half of credit unions hold less than $21 million. By contrast, American banks book assets of over $14 trillion.

Take small business. While banks have pulled back from lending to small businesses since the 2008 financial crisis, credit unions have expanded their lending portfolios every year.

Credit unions even benefit Coloradans who don’t get financial services from them. By competing directly against banks — and thus forcing them to keep rates lower than they otherwise would be — the state’s credit unions deliver nearly $37 million in benefits to Colorado’s bank customers.

All those benefits would vanish if the banking lobby were to successfully convince Congress to scrap credit unions’ non-profit status.

It’s not as if credit unions are tax-exempt entirely. Like other non-profits, they pay payroll taxes for employees and property taxes on buildings.

Further, stripping Colorado’s credit unions of their non-profit status and forcing them to pay income taxes wouldn’t generate much money — just $39.7 million. That’s less than a third of the economic value that credit unions deliver to members and non-members alike here in our state.

Removing credit unions’ non-profit status would hamper their ability to provide the services that their individual and small-business members need at affordable rates. They’d essentially turn into banks, with the higher fees and lower rates on savings that characterize the banking status quo.

Coloradans unequivocally benefit from the presence of non-profit credit unions in the financial services marketplace. Forcing them to pay new taxes would rob consumers of millions of dollars in benefits — and consequently hamstring our state’s economy.

C. Alan Peppers is president and CEO of Westerra Credit Union.

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